FinMin mulling innovative ways to deal with banks' NPA provision

The finance ministry is examining a proposal to find innovative ways for dealing with burden of NPA provisions by issuing provision shore-up certificates (PSC) to banks.

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With the help of this instrument, the operating profit of bank is saved from erosion and the lender would be able to focus on lending activities as being in financially good shape.

Under this scheme, the bank concerned will get PSC to the extent of its provision against the bad loans and conserve its capital, sources said, adding that this capital can then be used for expanding core business of lending.

This is at the "idea stage" and various aspects of this model are being examined, sources said.

This would be a kind of capital infusion not in one go but spread over various quarters.

A special trust would take over the underlying provisioned assets for monitoring, recovery and unlocking value, using the Insolvency and Bankruptcy Code, they said.

The instrument would be used only against NPAs and not for total provisions which also include those for employee benefit etc, sources added.

Besides, there is a fundamental difference between the proposal to set up a bad bank that takes over the entire stressed asset and the PSC mechanism. In the latter's case, the bank only assigns the stressed assets and will receive PSCs only to the extent of provisions made.

The gross non-performing assets (NPAs) of all the banks rose to Rs 8.40 trillion in December 2017, led by industry loans followed by services and agriculture sectors.

Gross NPAs of scheduled commercial banks as on December 31, 2017 due to loans to industry were at Rs 6.09 trillion, accounting for 20.41 per cent of the gross advances.

That was followed by Rs 1.10 trillion (5.77 per cent) dues from services sector, Rs 696 billion (6.53 per cent) from agriculture and allied activities, Rs 149.86 billion from other non-food credit and Rs 366.30 billion (2.01 per cent) from retail loans.